Indonesian Rupiah: BI measures may slow IDR losses against US Dollar - MUFG

MUFG’s Lloyd Chan notes that Bank Indonesia (BI) kept the BI rate at 5.75% while tweaking its policy mix to support the Indonesian Rupiah (IDR) without broadly tightening financial conditions. The bank cut reserve requirements and enhanced DNDF hedging incentives. MUFG remains cautious on IDR, keeping its USD/IDR forecasts at 18,350 by end-2026 and 18,500 in 1Q2027.

BI balances Rupiah support and liquidity

"Bank Indonesia was the main focus yesterday, keeping the BI rate unchanged at 5.75% while adjusting other parts of its policy toolkit to balance rupiah stability against domestic growth."

"At the same time, BI announced a phased reduction in banks’ reserve requirement ratio, providing additional domestic liquidity. For conventional banks, the reserve requirement ratio will fall from 9% to 8% on 1 November and further to 7% on 1 December. For sharia banks, the reserve requirement ratio will decline from 7.5% to 6.5% and subsequently to 5.5%."

"Nonetheless, we remain cautious on IDR as the external and portfolio-flow headwinds persist. Elevated US yields and energy prices remain unfavourable for the rupiah, while MSCI has launched a consultation to potentially reclassify Indonesia directly from Emerging Market to Standalone Market status."

"In our view, BI’s latest measures could help slow the pace of rupiah depreciation, but they are unlikely to reverse the trend, especially amidst external pressures and persistent equity-related outflows. We maintain our USD/IDR forecasts at 18,350 by end-2026 and 18,500 in 1Q2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)